Eurozone stocks swept higher yesterday after the European Central Bank announced it would continue to pump tens of billions of euros in stimulus into the economy each month.
However, the euro fell on the announcement by the ECB that it would will reduce its purchases of government and corporate bonds to €30bn per month, but continue them through September 2018.
“Today’s decision is a sea-change but a very gentle one, not a big-bang U-turn,” ING Diba bank economist Carsten Brzeski commented. “The ECB wants to start the exit as cautiously as possible.”
ECB chief Mario Draghi said the eurozone economy still relied on “an ample degree” of stimulus in the face of sluggish inflation.
Eurozone equities pushed higher after the announcements, with Frankfurt striking a record high during the session and closing the day 1.4% up at 13,133.28 points.
Paris jumped 1.5% at 5,455.40 points, London’s FTSE 100 was up 0.5% at 7,486.50 points and Madrid’s IBEX 35 was up 1.9% at 10,347.8 points, while the EURO STOXX 50 closed 1.4% up at 3,639.79 points yesterday.
“It looks like the ECB is managing a taper without a tantrum,” said Neil Wilson, senior market analyst at ETX capital.
The ECB had provided clear signals in recent weeks it would trim stimulus, thus avoiding a market panic or “taper tantrum” like after the US Federal Reserve surprised markets in 2013 with an abrupt announcement that it planned to pull support.
Analyst David Madden at CMC Markets UK noted that Draghi clearly indicated yesterday the ECB was acting cautiously, and could increase stimulus if necessary.
“Traders took this as an indication that their monetary policy will remain loose, and use the weakness in the euro as a reason to snap-up eurozone stocks,” he said in a note to clients.
Madrid also pushed higher despite rapid developments in Catalonia and unclarity about whether leaders would go through with declaring independence or support new elections.
In Asia yesterday, Tokyo and Shanghai ended higher but elsewhere markets were muted, tracking a retreat on Wall Street as fears over the progress of US President Donald Trump’s tax cut plans dampened investor sentiment.
Tokyo got a boost from strong corporate earnings, with messaging app Line surging nearly 17% as it reported better-than-expected profit.
Wall Street pushed higher, rebounding after closing lower Wednesday on soft earnings results.
Investors were pleased by Twitter delivering signs of a turnaround in its fortunes by narrowing its losses and heading toward profitability, sending its shares soaring over 16%.
Meanwhile, shares in Ford climbed 0.8% after it reported a jump in third-quarter profits on lower tax expenses as strong US sales of pickups and SUVs lifted results in North America.
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